Comparison of IRA vs. Roth IRA

By reComparison Contributor

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Difference between IRA and Roth IRA

How to afford the costs associated with retirement is an increasingly important concern for many people nowadays, what with the prospect of more people than ever retiring from the work force. Some of the options that have presented themselves as feasible solutions are the IRA and its related program, the Roth IRA. Choosing the proper one for your needs is a tremendously important concern, as it can have a significant effect on your retirement finances. With that in mind, let's go into the strengths and drawbacks of each program.

Taxing Differences

The main difference between the IRA and the Roth IRA is in how the taxes are calculated. In the case of the IRA, you will be able to deduct your contributions from your income tax. However, you will be required to pay taxes on any earnings when you withdraw them, as you will be allowed to do when you reach 59 ½ years of age.

With a Roth IRA, you will not be allowed to deduct your contribution from your income tax, although you are allowed to withdraw the principal any time you wish without obligation. Keep in mind though that you will have it pay a penalty for withdrawing any earnings before you have reached the approved age.

Flexibility

Aside from offering more tax breaks, the Roth IRA offers the further advantage of greater flexibility with regard to funding as well withdrawal. You can also keep contributing to the program for as long as you wish and you have no obligation to withdraw the money at whatever age.

While it may seem like an attractive prospect to be able to keep your money tax free, keep in mind that the Roth IRA is subject to annual income ceilings of $95,000 for single applicants and $150,000 for married couples.

Contributions

As mentioned previously, Roth IRA allows you to make contributions for as long as you wish, with no mandatory age limit for when you have to withdraw your money. That being said, you will have to pay a penalty for withdrawing your money before the age of 59 ½. As for IRA, you will have to pay the same penalty and you will be required to withdraw your money by the age of 70 ½ besides.

Summary

IRA

Contributions may be tax deductible

Funds may be withdrawn when the contributor is 59 ½ years or older, and will have to be withdrawn when he his 70 ½ years old

Earnings on withdrawals will be taxed

May be used to fund investment vehicles such as stocks, bonds and certificates of deposits

Available to anyone regardless of income level

Contributors will have to pay a 10% penalty if the funds are withdrawn before the allowable age of 59 ½ years

Roth IRA

No tax deduction on contributions

No age requirement for distribution

No taxes will have to be paid on either earnings and principal, provided the contributor conforms to all regulations

Can be used to fund the same investment vehicles as those allowed under the terms of the IRA

Available only to single contributors with an income of $95,000 or less, or married applicants with a combined maximum income of $150,000